Wednesday, October 26, 2011

How to Succeed in Business

When I received my Peace Corps
invitation to Armenia, my assignment was described as a “Business Development
Advisor”. While my work so far has not
really involved directly advising businesses, I have had some opportunity to
observe how things are done here.

As with most aspects of life, the
business world is still affected by the remnants of the Soviet period. I have written before about corruption which
remains a fact of life here and influences how business is done and the cost of
doing so. I have also written about how
the lack of trust interferes with making sensible business decisions that could
result from working together.

Meanwhile, the education system
as it is produces people that have limited entrepreneurial skills or direction about
where to go. There are business
universities here and I have worked with students in two so far. The universities here are different from the
US in that the curriculum is set (with no electives) so everyone has the same
classes without areas of specialty like marketing, accounting or
economics. But when asked about what the
students want to do after graduation, the answer is often “I want to work in a
bank”. Follow up questions about why are
met with silence – it seems the reason is that there are jobs there, with no
thought given about what function the job would be or why the person is
interested in banking. But the students
I spoke to this week gave even more surprising answers: kindergarten teacher,
working with the elderly or orphans, child psychologist. It is unclear why they are attending a business school.

It seems that the concept of a
business plan is something foreign here.
I have seen several business owners spend months getting a place ready
to open which then closes within a matter of weeks. Most banks require a business plan to get a
loan, but we were told in training that people are hesitant to supply them
since they fear their ideas will be stolen [since many small businesses seem to duplicate existing ones the fear of copying seems to be self-reflective]. Combine the seeming lack of
a plan with loans’ typical interest rates of 20% or more and it is easy to
understand why many fail. A person I
have been working with at an NGO asked for my assistance in putting together a
business plan for a venture to make money for the organization. I asked a few basic questions to help get the plan started (Is there a market for what you are planning to sell? Will you be
able to get the materials at a cost lower than you can sell for?) but I never
got a response. Nonetheless, a donor
organization funded the purchase of new equipment and people are being trained
to use it. The source of materials and a
market for the product are still open points but I have been asked for suggestions about how to advertise the venture.

The government is taking steps to
make Armenia a more favorable business environment and it has moved from 61st place to 55th in the World Bank's "Doing Business" annual report about 183 countries. In a similar Forbes ranking, Armenia moved from 96th to 89th of 130 countries. For example, it used to take an average of 39
days to register a business, including multiple trips to multiple agency
offices (all in Yerevan) to get approvals, etc.
An online process was initiated earlier this year, allowing a business
to be registered in 15 minutes. The tax
system, though, is still seen as very unfriendly to small businesses.

The prices of things tend to
fluctuate more than I am used to. As I
mentioned early this year, the forces of supply and demand doubled the price of
eggs in time for New Year. Since then,
the price came down to a level that was higher than the New Year spike but
lately I have seen fluctuations up and down.
While in the US price hikes are rarely reversed (or announced very
proudly if they are) here I never really know what to expect to pay.

Intellectual property presents
another challenge to legitimate business.
Logos are very popular here as evidenced by the clothing people wear but
trademarks mean nothing. The logos are
obviously fakes (unless Dolce & Gabbana are selling $5 sweaters and
producing things in a joint venture with Versace and/or Armani) and many are
misspelled (Adibas, Calvin Klaim).

I also think the newest restaurant in Gyumri
is infringing on a trademark, although I can’t be sure.

While there are movie theaters in
some cities, hardly anyone goes to the one in Gyumri. Instead, you can go to a video store and pay 500
dram (about $1.33) for a DVD with up to 10 movies on it, obviously pirated and
badly dubbed into Russian. I am told of
computer stores where you can pay less than $10 for the full Microsoft Office
suite.

In the Soviet era, Armenia was a
sort of manufacturing and processing hub.
Raw materials were brought in from other countries (Armenia doesn’t have
many) and finished goods were sold to the other countries. When the Soviet Union collapsed, both the
supplies and demand went away so most factories closed. Since then, the search has been on for a
replacement specialty beyond the brandy that Churchill helped to make famous.

The government believes that a
viable tourism industry can be developed for Armenia and I agree that it should
be – with the scenery, the historic landmarks, the food and the affordability
of most things it is a good tourist destination (at least on paper). When I was first coming here last year, a
nationwide tourism campaign was winding down.
The theme was “Noah’s Journey” since Armenia reveres Mount Ararat where
Noah’s Ark landed. Too bad that the
campaign inadvertently steered people to the other side of the border as Mount
Ararat is in modern-day Turkey. More
recently, the main tourist office was closed (shortly before the government
projection of a 20% increase in visitors).
It seems that the office was only drawing budget travelers and they
weren’t seen as worth the expense of the office.

The projections of increased tourism seem to be coming
true (although I am always wary of government statistics). A recent article about the increase in tourists this year
said that 580,000 people visits Armenia between January and September, an
increase of 18% over the same period in 2010.
Most tourists to Armenia stay with friends or relatives though - the article
mentions that the number of people staying in hotels between January and June 2011
was only 52,500 – so the impact on the economy is not what it could be if more non-diasporans
were to visit. Hotel occupancy rates are
extremely low (I have heard a figure of 27%) but most hotels have restaurant
and wedding businesses that they make their money from.

I am working on a tourism project
specific to Gyumri and, in connection with that, we tried to get information on all
of the hotels in the city. There is no
complete directory of hotels here and most rely on tour operators for their
business with no focus at all on individual travelers. None have online reservations, and the prices
are very high compared to the relative cost of everything else. Most don’t accept credit cards.

We recently got space allocated for a Gyumri tourist
office but no funding will be provided by the city to operate it. That is the least of the issues I recently
identified as hindering tourism here (unpaved streets, lack of sidewalks and
street signs being some others) but the sense is that tourists will come
anyway. After all, the mayor just built
a new hotel….

As to businesses that do exist,
they have peculiarities that I don’t often see in the US. One thing you have to get used to is the
different names that a store can be called.
A grocery store may have a sign that says խանութ (khanut,
meaning “shop” or “store”), մթերք(mterk, meaning “provisions”), վաճառատուն (vajaratun, meaning “sellinghouse”) or առեւտրիսրահ (arevtrisrah, meaning “commerce shop) or it
may have no sign at all.

The offerings in what I refer to
as grocery stores can be quite broad – the one store may sell fresh fruits and
vegetables, soap and detergents, clothing, notebooks and, of course, candy and
vodka. In a village that is to be
expected, but I see the same thing in Gyumri, where there are more specialized
shops for stationery, hardware and home goods.
But one of my favorites has three main offerings – housewares, clothing
and fireworks.

The larger grocery stores have
separate registers for separate sections (reminding me of Nathan’s in Coney
Island). You get a few items from one
section, pay for it and move on to the next.
While most of what are labeled “supermarkets” have centralized
registers, one that I go to often has two floors and you need to pay for
anything you buy on the floor from which you got it.

Usually, if you see a shop
selling something, there is at least one other (sometimes more) in the area or
even immediately next door. In these
cases, they usually sell the same things at the same prices. While you can expect that is a place like the
main market, it also happens with stores in other parts of the city. I normally see two, three or four khanuts in
a row or clustered in a small area. DVD
stores, fabric shops, clothing stores and hardware businesses are likewise on
top of one another.

The blue tarp toward the right is a grocery store like the one on the left. There was another across the street behind me.

One trend that makes sense, given
the increasing average age of the population, is the recent openings of a lot
of drug stores. Two chains seem to be
everywhere and one near me recently expanded but its competitor is opening in
the adjacent storefront. Given that this
is par for the course in Manhattan, I suppose I shouldn’t see this as
noteworthy.

Many businesses don't post business hours and window
displays may not make it
clear what is even sold. When they
do have business hours, they don’t necessarily mean the place will be
open. Many don't advertise (and
as I said above, some don't even have a sign), or may have flyers that are only available in the
store.

My gym is a good example. It took me more than six months to find out
the place even existed and it seems to survive on word-of-mouth as there is no
sign. Officially, it is open from 10 – 9
Monday through Friday and 1 – 9 Saturday, except when it isn’t – the women who
clean may come in at 11 and tell everyone to leave; the owner may decide to go
somewhere at 7:30 and close.

When a business does have a sign, it does not necessarily mean that what you see is what you get. As I discussed previously about gender roles, I can assure you that these are not representative of who is working in gas stations in Armenia.

Restaurants also have
peculiarities. More times than I can
remember, I have gone to one that has an extensive menu but then learn that
many things on it are not available.
Better yet, I went to a café once with a group of fellow volunteers and
we were told there is no menu. We asked
what they had and we were told “everything!”
We then asked for at least five things that are staples of cafes (pizza,
shawarma, kebabs, etc) and were told they did not have them. We didn’t have the patience to try to figure
out what they might actually have, so we left.

The merchandise in stores is also
interesting. In most stores, you buy
eggs individually (although you can get cartons of 10). Toilet paper is often sold in individual
rolls, but not wrapped the way that Scott Tissue is. While you can buy it packaged, butter is often sold in irregular sizes and you pay
by the kilo. Cereal, pasta, flour, sugar,
rice and other staples are bought by the kilo – sometimes in pre-packaged
amounts, sometimes not. And every
grocery store has a wall or aisle dedicated to vodka, wine and brandy and
another devoted to candy and cookies.

Many other small businesses I see are of a few types - beauty salons, internet cafes, cel phone retailers, auto parts and tire repair, bridal salons selling flowers and renting wedding dresses. The larger businesses are foreign owned (the primary phone / internet companies) or owned by "oligarchs", the rich Armenians who have connections with or are part of the government.

Despite all of these issues, sometimes
you see things that seem to be done in a well thought out manner. Recently, a game arcade opened
near the center of town. It was
remarkable because it was something the city did not already have, a lot of
money was obviously put into it, the location is great and it seems to have
been laid out in a way that is customer friendly with prices for the games that
are not outrageous. We wondered about
how someone would be able to afford such a venture and this weekend I found out
– it is owned by the mayor’s brother.

What This is About

These are my observations of living in Armenia during my service with the Peace Corps. The contents of this website are mine personally and do not reflect any position of the U.S. Government or the Peace Corps.